Daily Archives: January 15, 2021

Arpan Patel, CLS ’22

The ongoing pandemic has wrought devastation on American small and medium sized enterprises (SMEs). These businesses make up the critical “Main Street” segment of the American economy – they provide work for 45 million Americans and their workforce accounts for nearly 40% of private sector employees.[1] Yet, in the three months ending in June 2020, 1.4 million SMEs either closed or suspended operations.[2] The recession on Main Street impedes our ability to manage and recover from the pandemic.

In response, Congress directed the Board of Governors of the Federal Reserve (Fed) and U.S. Department of the Treasury (Treasury) to create a program to support SMEs in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).[3] Pursuant to this mandate, and under authority of section 13(3) of the Federal Reserve Act (FRA),[4] the Fed and the Treasury created the Main Street Lending Program (MSLP or “Program”) to “[e]nsure credit flows to small and mid-sized businesses…who were in sound financial condition before the onset of the COVID-19 pandemic.”[5] The Fed, through the MSLP, is authorized to purchase up to $600 billion in loans made to SMEs, with Treasury providing $75 billion in equity investment to absorb losses that accrue to the MSLP.[6]

However, the MSLP has received only modest use since its inception, leading many to question its utility.[7] As of September 22, 2020, banks in the Program had issued or initiated $2 billion of loans, which amounts to 0.3% of the total funds available to the MSLP.[8] And as of August 10, 2020, only 160 out of the 522 banks in the program had publicized that they are accepting loan applications from new customers.[9]

The MSLP’s nonuse is a function of practical, legal, and political deficiencies.

On a practical level, the overly restrictive terms for borrowers combine with the unattractive terms for lenders to discourage use by SMEs and banks alike.[10] Many SMEs on the demand side of the Program are either explicitly shut out by the restrictive eligibly terms or are discouraged by the onerous borrowing terms. Similarly, the complexity increases the costs to the bank to originate MSLP loans in the first place, which spoils the Program’s appeal on the supply side.[11]

On a legal level, section 13(3) of the FRA imposes restrictions on the Fed’s ability to administer the MSLP successfully.[12] Notwithstanding Congressional attempts to navigate these legal restrictions in the CARES Act, the MSLP remains handicapped by at least four structural legal deficiencies. First, Congress attempted to satisfy the Fed’s loss protection requirement in subsection (B)(i) by mandating the first-loss investment by Treasury. However, Treasury Secretary Mnuchin has leveraged this equity stake to effectively increase the price and terms of the MSLP, which is a major driver of the Program’s nonuse.[13] Second, Congress suspended sub silento the subsection (B)(i)’s requirement that lending be designed to provide liquidity to the financial system as a whole (as opposed to real economy borrowers like individual businesses) by implying that the Fed in fact does have that power: Section 4003(b) of the CARES Act authorizes Treasury to invest in “programs or facilities established by the Board . . . for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, States, or municipalities…”[14] Sub silento lawmaking comes with significant costs in terms of clarity, uncertainty, and accountability for agencies.[15] Third, the inability of the Fed to lend to any individual counterparties under (B)(i) and (iii) means that any aid under section 13(3) must come as standardized product that has broad-based eligibility. To create a standardized product that is useful for hundreds of thousands of SMEs with unique borrower profiles is not, as Chairman Powell said, “practicable.”[16] And fourth, the Fed is bound by its own Regulation A, which requires any 13(3) lending be done at a penalty rate at a premium to the market rate in normal circumstances.[17] While the Fed has plenary authority to amend Regulation A, its continued effectiveness operates as a self-imposed restriction on the Fed’s ability to offer more attractive terms in the MSLP.

On a political level, the MSLP, its ineffective-by-design structure and the intertwining of Fed and Treasury, is pushing the Fed into legitimately concerning political territory.[18] In the MSLP, Congress is asking the Fed to act in an industrial policy capacity (instead of its typical monetary policy capacity) by providing credit directly to the real economy. This is a role for which the Fed has neither the institutional nor operational capacity. Moreover, this new role opens up the Fed to political lobbying. [19]  Indeed, multiple revisions to the terms MSLP has been the result of intense lobbying pressure from stakeholders across the spectrum.[20]

Despite all this, the Fed continues to insist that the MSLP is effective. Fed officials excuse the nonuse by pointing to the fact that SMEs have made use of the Payroll Protection Program (which has now expired) or taken out loans from nonbank lenders.[21] Further, Fed Chairman Jerome Powell said that if conditions get worse, the MSLP stands ready, as a “backstop.”[22] But this means that, without amendments to the Program, a future downturn in the economy will force SMEs to either shut their doors or turn to the unwelcoming embrace of the MSLP. Before that day comes, the Fed, Treasury, and Congress must revisit the provision of SME pandemic aid if they hope to save Main Street.[23]

[1] Nick Timiaraos & Kate Davidson, Fed, Treasury Disagreements Slowed Start of Main Street Lending Program,

Wall Street Journal (July 12, 2020), https://www.wsj.com/articles/fed-treasury-disagreementsslowed-start-of-mainstreet-lending-program-11594558800

[2] Gretchen Morganson et al., Misery on Main Street: COVID-19 takes a grim toll on America’s small businesses, NBC News (Sep. 23, 2020), https://www.nbcnews.com/business/economy/misery-main-street-covid-19-takes-grim-toll-america-s-n1239524

[3] CARES Act § 4003

[4] 12 U.S.C. § 343(3)

[5] Press Release, Board of Gov. of the Fed. Res., Federal Reserve takes additional actions to provide up to $2.3 trillion in loans to support the economy (Apr. 9, 2020), https://www.federalreserve.gov/newsevents/pressreleases/monetary20200409a.htm

[6] Id.

[7] Jeanna Smialek, A Coffee Chain Reveals Flaws in the Fed’s Plan to Save Main Street, N.Y. Times (Jul. 9, 2020), https://www.nytimes.com/2020/07/09/business/economy/federal-reserve-treasury-main-street.html

[8] Hybrid Hearing With Federal Reserve Chair Jerome H. Powell Before Select Subcomm. on the Coronavirus Crisis, 116th Cong. (September 23, 2020)

[9] Congressional Oversight Commission, The Fourth Report of the Congressional Oversight Commission, August 21, 2020, at 5, https://coc.senate.gov/sites/default/files/2020-08/COC%204th%20Report_08.21.2020%20with%20Appendix%208-27%20update.pdf

[10] Christopher Condon & Catarina Saravia, Banks Blame Tight Terms for Fed Main St Program’s Slow Start, Wash. Post (Sep. 29, 2020, 8:30 P.M.) https://www.washingtonpost.com/business/on-small-business/banks-blame-tight-terms-for-fed-main-st-programs-slow-start/2020/09/29/d7165f8a-027f-11eb-b92e-029676f9ebec_story.html; see also Laura Noonan et al., US Main Street virus era loans programme largely shunned, Financial Times (Jul. 1, 2020), https://www-ft-com.ezproxy.cul.columbia.edu/content/c09da6a2-39a9-4523-bd9a-1061e9865b66

[11] Howard Schneider, Fed’s Main Street lending may be missing core group of firms – survey, Reuters (Sep. 29, 2020, 2:50 PM) https://www.reuters.com/article/idUSKBN26K39M

[12] Under the subsection (A), before the Fed can purchase a loan in the MSLP, it must “obtain evidence that such participant . . . is unable to secure adequate credit accommodations from other banking institutions.” Subsection (B) imposes further obligations: (i) the Fed program must be designed to provide liquidity to the financial system as a whole, and the terms of the loans are sufficient to protect taxpayers from losses; (ii) the Fed must establish procedures to prohibit borrowing by insolvent counterparties; (iii) the program may not be designed to assist a single company; and (iv) the Fed must receive approval from the Secretary of the Treasury before authorizing lending under the provision. 12 U.S.C. § 343(3)

[13] Jeanna Smialek & Alan Rappeport, Fear of Risk Could Diminish the Economic Rescue by the Treasury and Fed, N.Y. Times (May 18, 2020), https://www.nytimes.com/2020/05/18/business/economy/economic-stimulus-treasury-fed-risk.html

[14] CARES Act § 4003.

[15] Lev Menand, Unappropriated Dollars: The Fed’s Ad Hoc Facilities and the Rules That Govern Them (Euro. Corp. Gov. Institute, Law Working Paper No. 518/2020, May 16, 2020), https://ssrn.com/abstract=3602740

[16] See supra note 9

[17] 12 C.F.R. 201.4(d)(7); see also 84 Fed. Reg. 39723 (Aug. 12, 2019)

[18] David T. Zaring, The Government’s Economic Response to the COVID Crisis (July 28, 2020), https://ssrn.com/abstract=3662049; see also Chrstine A. Desan et al., The Constitution and the Fed after the COVID-19 Crisis (Univ. of Colo. Law Legal Studies, Paper No. 20-38, June 24, 2020), https://ssrn.com/abstract=3635059

[19] Menand, supra note 14

[20] Id.

[21] See supra note 9

[22] Id.

[23] William English & Nellie Liang, How to fix the Fed’s broken Main Street Lending Program, L.A. Times (Oct. 8, 2020) https://www.latimes.com/opinion/story/2020-10-08/op-ed-how-to-fix-main-street-lending-program

Joe Sullivan, CLS ’22

It has been five years since the Supreme Court’s historic marriage equality ruling in Obergefell v. Hodges.[1]  However, on the first day of the Supreme Court’s 2020-2021 term, two conservative justices voiced their continued disapproval of Obergefell.  Kim Davis, a county clerk from Kentucky, petitioned for a writ of certiorari for her case against one of the gay couples to whom she denied a marriage license in the wake of Obergefell.[2]  The court denied Davis’ petition, but included a statement on its denial from Justice Clarence Thomas, joined by Justice Samuel Alito, that alarmed LGBTQ+ Americans and allies.

Justice Thomas, who joined Chief Justice John Roberts’ dissent in Obergefell,[3] wrote that, “Davis may have been one of the first victims of th[e] Court’s cavalier treatment of religion in its Obergefell decision, but she will not be the last.”[4]  Justice Thomas opined that a legislative solution would have been preferable to the Court “bypass[ing] that democratic process.”[5]  Finally, Thomas’ statement ended with a possible ultimatum: “By choosing to privilege a novel constitutional right over the religious liberty interests explicitly protected in the First Amendment, and by doing so undemocratically, the Court has created a problem that only it can fix.”[6]

Is Justice Thomas’ statement an implicit call for plaintiffs to bring new religious liberty challenges to Obergefell?  It is too early to tell, but the prospect of such challenges facing a majority-conservative Court (should the Senate confirm Judge Amy Coney Barrett’s nomination) has been enough to cause legal analysts to question the security of LGBTQ+ Americans’ right to marry.[7]

Should the Court overrule Obergefell and resort to legislative solutions, it is possible that these statutes will be subject to religious liberty challenges raised under the Religious Freedom Restoration Act (RFRA).[8] The RFRA requires the government to show that it is burdening a religion only if it furthers a compelling interest, and is the least restrictive means of furtherance.[9]  RFRA-based challenges to marriage equality statutes, if successful, could potentially dilute LGBTQ+ American’s right to marry, making it conditional on a least-restrictive application.  While this standard is heightened, it is not impossible to overcome.[10]  However, the added burden on the government could potentially usher in an erosion of some freedoms for which LGBTQ+ Americans have fought.

[1] Obergefell v. Hodges, 576 U.S. 644 (2015).

[2] Michael C. Dorf, In Gratuitously Attacking Marriage Equality, Clarence Thomas Accidentally Raised an Important Question About the Scope of Religious Liberty, Verdict (Oct. 14, 2020), https://verdict.justia.com/2020/10/14/in-gratuitously-attacking-marriage-equality-clarence-thomas-accidentally-raised-an-important-question-about-the-scope-of-religious-liberty.

[3] 576 U.S. at 686.

[4] Davis v. Ermold, No. 19-926, slip op. at 2 (U.S. Oct. 5, 2020).

[5] Id. at 1.

[6] Id. at 4.

[7] See Joan Biskupic, With court in flux, Thomas and Alito attack same-sex marriage ruling, CNN (Oct. 5, 2020, 6:16 PM), https://www.cnn.com/2020/10/05/politics/thomas-alito-obergefell-same-sex-marriage-analysis/index.html; Dorf, supra note 2; Adam Liptak, Justices Thomas and Alito Question Same-Sex Marriage Precedent, N.Y. Times (Oct. 5, 2020), https://www.nytimes.com/2020/10/05/us/politics/thomas-alito-same-sex-marriage.html.

[8] 42 U.S.C. § 2000bb-1.

[9] Id.

[10] See, e.g., U.S. v. Wilgus, 638 F.3d 1274 (10th Cir. 2011) (holding that the government met the RFRA’s least restrictive means standard in criminalizing possession of eagle feathers without a proper permit).

Olivia Berci, CLS ’22

On November 10^th, a week after the presidential election, the Supreme Court heard oral arguments in two consolidated cases challenging the constitutionality of the Affordable Care Act (ACA).[1] Hanging in the balance is not only the insurance tens of millions of Americans gained through the ACA’s premium subsidies (that help enrollees cover their monthly insurance payments) and the law’s expansion of Medicaid,[2] but also the provisions of the law that protect people with preexisting conditions.[3]

Before the ACA, refusing to issue insurance to people with certain health conditions, excluding from coverage care associated with certain illnesses, and charging higher premiums based on a person’s health status were common practices.[4] Fifty-four million Americans have a preexisting condition that would have led to coverage denial in the individual insurance market before the ACA,[5] and that number will likely worsen as coronavirus cases in the United States surge well over 10 million.[6]

COVID-19 will likely become a preexisting condition.[7] In fact, having taken hydroxychloroquine, an anti-malaria drug President Trump pugnaciously promoted as a treatment for the coronavirus,[8] could have impaired one’s access to coverage before the ACA.[9] Should the Supreme Court strike down the ACA, a person who applies for health insurance who is sick or who has been sick with coronavirus could be “turned down, charged more, or offered a plan that excludes coverage for COVID-19 or related symptoms.”[10] Insurers could also cancel coverage if someone develops a health problem linked to an undisclosed coronavirus diagnosis.[11] In other words, an insurer could rescind someone’s policy when they develop an expensive heart or lung condition if they have coronavirus antibodies — even if they were unaware of their exposure to the virus.[12] Analysts further suggest that someone who tests negative for COVID-19 could be discriminated against if insurers determine that those who seek testing carry a higher risk of contracting the virus,[13] which could disincentivize individuals from seeking testing.

To rewind: In 2012, in NFIB v. Sebelius, the Supreme Court narrowly held that it would be unconstitutional for Congress to force Americans to purchase health insurance.[14] But, the Court upheld the ACA’s individual mandate by interpreting the statute as giving people a choice between buying insurance or paying a tax to the IRS.[15] In 2017, Congress zeroed the tax penalty for not purchasing health insurance.[16]  The ACA is still on the books and includes an instruction that people “shall” buy health insurance,[17] but, when Congress eliminated the tax associated with the coverage requirement, the ACA’s instruction became unenforceable: “Neither the Act nor any other law attache[d] negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS.”[18]

Back to present day: The most recent challenge against the ACA was originally brought by a group of 20 attorneys general from Republican states.[19] They claim that the mandate, without the penalty, no longer offers people a choice between complying with the law or facing a tax, and, thus, represents an unconstitutional command to purchase insurance. [20] Moreover, the plaintiffs argue, the entire ACA must be struck because the mandate is inseverable from the rest of the law.[21] Legal scholars argue that neither claim is legally defensible.[22]

A Democratic Congress could revive the ACA by passing a law that cures the constitutional command problem – either by imposing a nominal tax penalty for foregoing insurance or by striking the instruction altogether.[23] However, if Republicans maintain control of the Senate, Senate Majority Leader Mitch McConnell would likely block any attempt by President Biden to restore the law, and, even if Democrats pick up both Georgia Senate seats in the January runoff, Democrats would have to reckon with the Senate’s filibuster.[24]

The ACA may yet survive. Even if the challengers have the votes on the constitutional merits of the challenge, they still have to win the Court over on standing – as a threshold matter – and severability, for the entire law to fall.[25] But, to be clear, the only source of protection for Americans with pre-existing conditions is the ACA.[26] A decision in the case is expected sometime in 2021.[27]

[1] See Transcript of Oral Argument, California v. Texas, 140 S. Ct. 1262 (2020) (No. 19-840), https://www.supremecourt.gov/oral_arguments/argument_transcripts/2020/19-840_i426.pdf [https://perma.cc/H3P2-MLW8].

[2] See Chart Book: Accomplishments of Affordable Care Act, Center on Budget and Policy Priorities, https://www.cbpp.org/research/health/chart-book-accomplishments-of-affordable-care-act [https://perma.cc/X7GE-RWFE].

[3] See Katie Keith, What It Means To Cover Preexisting Conditions, Health Affairs Blog, https://www.healthaffairs.org/do/10.1377/hblog20200910.609967/full/ [https://perma.cc/5RRJ-V5Y2].

[4] See Larry Levitt, Protecting People With Pre-Existing Conditions Isn’t As Easy As It Seems, Kaiser Family Foundation, https://www.kff.org/policy-watch/protecting-people-with-pre-existing-conditions-isnt-as-easy-as-it-seems/ [https://perma.cc/CFQ6-L5G3].

[5] See Nearly 54 Million Americans Have Pre-Existing Conditions That Would Make Them Uninsurable in the Individual Market without the ACA, Kaiser Family Foundation, https://www.kff.org/health-reform/press-release/nearly-54-million-americans-have-pre-existing-conditions-that-would-make-them-uninsurable-in-the-individual-market-without-the-aca/ [https://perma.cc/2PL8-7YJV].

[6] See Covid in the U.S.: Latest Map and Case Count, N.Y. Times https://www.nytimes.com/interactive/2020/us/coronavirus-us-cases.html [https://perma.cc/HS5J-8EY5]; See Keith, supra note 3.

[7] Andy Slavitt & Nicholas Bagley, America’s Health Care Is Under Existential Threat, N.Y. Times, https://www.nytimes.com/2020/09/23/opinion/trump-supreme-court-obamacare.html [https://perma.cc/YXW8-JLMQ] (“[C]ontracting the virus is the ultimate pre-existing condition.”).

[8] See Peter Baker et al., Trump’s Aggressive Advocacy of Malaria Drug for Treating Coronavirus Divides Medical Community, N.Y. Times, https://www.nytimes.com/2020/04/06/us/politics/coronavirus-trump-malaria-drug.html [https://perma.cc/3Y4R-AZEZ].

[9] See Levitt, supra note 4.

[10] Karen Pollitz et al., Is COVID-19 a Pre-Existing Condition? What Could Happen if the ACA is Overturned, Kaiser Family Foundation, https://www.kff.org/policy-watch/is-covid-19-a-pre-existing-condition-what-could-happen-if-the-aca-is-overturned/ [https://perma.cc/HYY4-PREX].

[11] See Tara Straw & Aviva Aron-Dine, Commentary: ACA Repeal Even More Dangerous During Pandemic and Economic Crisis, Ctr. on Budget & Pol’y Priorities, https://www.cbpp.org/health/commentary-aca-repeal-even-more-dangerous-during-pandemic-and-economic-crisis [https://perma.cc/2QRM-TCLZ].

[12] Id.

[13] See Pollitz et al., supra note 10.

[14] See National Federation of Independent Businesses v. Sebelius, 567 U.S. 519 (2012).

[15] Id. at 563.

[16] See Heather Long, The final GOP tax bill is complete. Here’s what is in it., Wash. Post.,   https://www.washingtonpost.com/news/wonk/wp/2017/12/15/the-final-gop-tax-bill-is-complete-heres-what-is-in-it/ https://perma.cc/48E8-J7BS].

[17] 26 U.S.C. § 5000A(a).

[18] 567 U.S. at 568.

[19] See Texas v. United States, 945 F.3d 355 (5th Cir. 2019).

[20] See, e.g., Brief of Plaintiffs in Support of Application for Preliminary Injunction at 1, Texas v. United States, 945 F.3d 355 (5th Cir. 2019) (No. 18-cv-00167-O).

[21] Id.

[22] See generally Brief for Professors Michael C. Dorf and Martin S. Lederman as Amici Curiae in Support of Petitioners on Question Two, California v. Texas, 140 S Ct. 1262 (2020) (No. 19-840).

[23] See Nicholas Bagley, the Fallout of a SCOTUS Health-Care Decision Could Be Quick, Devastating, and Irreversible, Atlantic, theatlantic.com/ideas/archive/2020/11/fallout-scotus-health-care-decision/617048/ [https://perma.cc/RLK7-KARL].

[24] Id.

[25] See Transcript of Oral Argument, California v. Texas, 140 S. Ct. 1262 (2020) (No. 19-840), https://www.supremecourt.gov/oral_arguments/argument_transcripts/2020/19-840_i426.pdf [https://perma.cc/H3P2-MLW8].

[26] Some states have moved to ensure the ACA’s protections prohibiting discrimination on the basis of health history are written into state law. See Sabrina Corlette & Emily Curran, Can States Fill the Gap if the Federal Government Overturns Preexisting Condition Protections?, COMMONWEALTH FUND, https://www.commonwealthfund.org/blog/2019/can-states-fill-gap-preexisting-condition-protections. [https://perma.cc/7VT5-3WR5]. But, before the ACA, state efforts to enact protections for preexisting conditions had destabilizing effects on state insurance markets. See id. (“[S]tate efforts to require insurers to cover people with preexisting conditions resulted in large premium spikes and, in some cases, caused insurers to exit the market.”).

[27] Amy Howe, Argument analysis: ACA seems likely to survive, but on what ground?, SCOTUSblog, https://www.scotusblog.com/2020/11/argument-analysis-aca-seems-likely-to-survive-but-on-what-ground/ [https://perma.cc/U9EP-3XEC].